Experts don't expect quick work on pension overhaul

Expecting this latest special session of the legislature in Springfield to get Illinois' finances back on track is like expecting someone who throws out the ceremonial first pitch at Wrigley Field to give the Cubs six solid innings on the mound.

Both exercises are strictly for show. The difference is, there's applause sometimes for the person throwing out the first pitch.

No one seems all that excited about Gov. Pat Quinn calling for a June 19 encore to the recently concluded legislative session. There's also little optimism that legislators actually will deal with the fiscal mess, including the state's huge unfunded pension liability, that they so neatly sidestepped last month.

This column has suggested those of us who live here deserve better; that we need statesmen rather than politicians, people capable of making tough choices, public servants who put the state's interests ahead of their own. That said, however, we're the ones who each Election Day keep sending them back down there. The tacit approval has to look odd to outsiders.

"They know there's a problem. They say they know there's a problem. Yet they won't do anything about it," said Justin Land, who follows the bond market as senior vice president of portfolio management for Wasmer, Schroeder & Co., in Naples, Fla.

"I don't think you're going to be able to get pension reform done during a special session," said Tamara Lowin, the lead analyst for Belle Haven Investments in White Plains, N.Y. "There's no way they're going to get two-thirds approval. They're going to have to wait until the next regular session begins, but something's going to have to happen soon. … It's on the brink."

The ratings agencies have lined up to scold our state, with Moody's and Fitch downgrading Illinois' credit grade and Standard & Poor's merely tsk-tsking Springfield because it never really expected any action from the pols this session.

Unfortunately, the negative outlook they attach to this state and its leaders casts a shadow on all who live and work here, and the cloud grows darker with the mounting cost of inaction for which we're all on the hook.

Even those governmental entities within the state that have had the discipline to keep their spending in line, cities and counties that made the kind of tough decisions that Springfield cannot bring itself to make, stand to suffer because Quinn, Rep. Mike Madigan, Sen. John Cullerton and the other lawmakers — if we're still allowed to call them that — can't pull the trigger.

"Reputation risk … is a real concern," noted Michael Stanton, publisher of The Bond Buyer, which has covered municipal finance for more than 120 years. "There are definitely some investors who worry that the state will eventually try to solve its problems by passing the pain on to local governments with reduced grants and increased mandates."

Even if that doesn't happen, leading to higher local taxes and reduced services, the downgrades look to scare some would-be investors, giving those still in the market a better price. Great for the buyers, but for taxpayers not so much.

"There are a lot of strong areas in any state where you can find value no matter what's happening in Springfield or Sacramento or any of the state capitals," said Matt Dalton, Belle Haven Investments' chief executive, who has little use for this state's paper but finds value at the local level.

These downgrades, Dalton said, "will further remind your ma-and-pa retail investor that they don't like Illinois, and they won't buy any more Illinois bonds. We love that as a professional manager because now we have less competition for local credit. We get to dig through areas all up and down the state and find those jewels in the rough that we're able to buy at better-than-average prices."

In case you've managed to tune out this whole mess, the average state's pension pool is 75 percent funded, and there are plenty of people who think that might not be enough. Illinois' most recent actuarial valuation, not quite a year ago, found its public pensions only 40.4 percent funded. The unfunded actuarial accrued liability was estimated then at $94.6 billion.

But the huge liability alone, even coupled with a multibillion-dollar accounts-payable backlog, isn't what has the ratings agency looking askance.

Standard & Poor's, echoing Fitch and Moody's, harped on the fact the General Assembly doesn't seem to acknowledge the urgency of any of this. The state has protections that ensure bond buyers get their money. The ratings are less a reflection of the full faith and credit of the state than faith in its so-called leaders.